Thursday, October 22, 2015

Under current policies, Saudi Arabia, Bahrain, and Oman will run out of money in 5 years says IMF. 80% of Saudi revenue is from crude oil, without new sources of revenue other than oil over next 5 to 10 years, 'then of course, they’re in big trouble'-Bloomberg

The same is true of Bahrain and Oman in the six-member Gulf
Cooperation Council, the IMF said in a report on Wednesday. Kuwait,
Qatar and the United Arab Emirates have relatively more financial assets
that could support them for more than 20 years, the Washington-based
lender said.

Reserve Accumulation

Saudi
Arabia accumulated hundreds of billions of dollars in the past decade
to help the economy absorb the shock of falling prices. The kingdom’s
debt as a percentage of gross domestic product fell to less than 2
percent in 2014, the lowest in the world.

The recent decline in
the price of crude, which accounts for about 80 percent of Saudi’s
revenue, is prompting the government to delay projects and sell bonds
for the first time since 2007. Net foreign assets fell to the lowest level
in more than two years in August, with the kingdom fighting a war in
Yemen and avoiding economic policies that could trigger social or
political unrest.

Budget Deficit

The
IMF expects Saudi’s budget deficit to rise to more than 20 percent of
gross domestic product this year after King Salman announced one-time
bonuses for public-sector workers following his accession to the throne
in January. The deficit is expected to be 19.4 percent in 2016.

“There
have been a number of one-off spending proposals this year that have
taken place, and those initiatives have added to the spending needs,”
Masood Ahmed, director of the Middle East and Central Asia department at
the IMF, said in an interview in Dubai.

“The budget deficit in
Saudi Arabia does go down substantially as a share of GDP over the next
five years but it still remains high over this period, all the more
reason to identify ways in which it can be brought down further to more a
manageable level," he said.

David Butter, associate fellow at Chatham House in London, said a crisis isn’t imminent.

The benchmark Tadawul
All Share Index for stocks declined 1.7 percent at 12:35 p.m. in
Riyadh, extending its drop over the past year to 25 percent. The MSCI
Emerging Market Index has fallen 12 percent over the same period.

Debt Sales

The
kingdom’s net foreign assets fell for a seventh month to $654.5 billion
at the end of August. Saudi Arabia has raised 55 billion riyals ($14.7
billion) from debt issuance this year. The IMF expects the debt-to-GDP
ratio to grow to 17 percent next year.

Analysts have said Oman and Bahrain face greater risks
than their wealthier neighbors from the decline in crude prices, with
less oil to sell, thinner fiscal buffers and in Bahrain’s case, more
debt.

The IMF expects Oman’s budget deficit to widen to 17.7
percent of GDP this year and 20 percent in 2016. For Bahrain, the fund
expects the shortfall to stand at 14.2 percent in 2015 and 13.9 percent
next year."